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Consolidation

June 9th, 2003 · No Comments

The consolidation o the IT industry has begun. In the recent past, PeopleSoft has announced plans to buy JD Edwards, and then itself is now the target of a takeover bid by Oracle. Palm has bought Handspring. Barron’s writes:

There are far too many technology companies, and they will not all survive. Seventy percent of all publicly held technology companies have market caps of $250 million or less. “And here are J.D. Edwards and PeopleSoft, who clearly are not in this category, thinking that they all need to bulk up,” Deninger says. “So the question is: What are those in the seventy percent category thinking? It’s time to wake up and smell the coffee.”

The number of publicly held technology companies has been winnowing since the bubble burst, but naturally most of them have been in Deninger’s 70% Club. In 2002, the number of publicly traded tech concerns declined for the second year in a row, for the first time since 1989, and Deninger predicts the trend will continue in 2003. “It’s going to be the first time ever for three years in a row,” he says. “There simply are too many of them.”

Some 200 to 300 tech companies will disappear this year and probably next due to mergers, buyouts, and bankruptcies. At least, that has been the case during the previous two years. There are 30% fewer companies in the Nasdaq from its peak.

Adds Kevin Werbach: “Everyone in high-tech was hoping that the economic downturn would be over by now, but instead we’re still bumping along the bottom of the IT spending trough. That, combined with ruthless commoditization pressures, means no one can grow their way out of the current situation. Everyone must either find a small but lucrative niche, or get big enough to compete with gorillas like Microsoft, IBM, Cisco, Nokia, and Sony.”

Tags: General

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